Regulatory intensity to continue in 2017: Deloitte

Financial services companies will need to respond to the changing regulatory environment in an “agile way” as 2017 looks to be a year of embedding reforms and intensifying supervision.

Kevin Nixon, global and Asia-Pacific leader at Deloitte’s Centre for Regulatory Strategy explained that while the post-crisis period of prescriptive rule making is slowing, regulation will continue to evolve and drive change.

“In 2017 the focus will turn to embedding reforms, intensifying supervision, continuous planning and testing, and dealing with emerging risks such as disruptive innovation and cyber security,” Mr Nixon said.

“This means the regulatory agenda will remain full in the coming years, and financial services firms operating in the Asia Pacific region will need to respond to the changing regulatory landscape in an agile way.”

One of the biggest regulatory outcomes of 2017 will be ASIC’s report on mortgage broker remuneration. Industry funding of ASIC is expected to commence in the second half of the year.

Meanwhile, APRA is set to release its revised prudential standard on residential mortgage lending in Q1.

Released this week, the Deloitte Asia Pacific Centre for Regulatory Strategy report outlines four major regulatory themes dominating the outlook for Asia Pacific financial services firms during 2017: resilience, governance, supervision and technology.

Resilience

Since the financial crisis, much of the focus for regulators has been on ensuring the resilience of financial institutions and the financial system.

Deloitte expects this will continue into 2017, with a particular emphasis on domestic implementation.

“The ‘Basel IV’ rules for banks are due to be finalised by the end of 2016, with the first iteration of the global capital standards for insurers released in 2017, and the resilience of the asset management industry to be investigated,” the report said.

“Regulatory expectations around stress testing will also increase in 2017, with more intricate and diverse scenarios.”

The report noted that local regimes will further align with international standards on recovery and resolution planning.

“Organisations may need to devote significant energy and resources to meet new sets of rules and improve capabilities in these resilience building areas.”

Governance

The Deloitte report highlighted that recent examples of governance and conduct failings will mean that 2017 will see a sharpened regulatory focus on ensuring firms have robust governance frameworks throughout the entirety of their organisation, with a priority on organisational culture.

Deloitte is confident that in 2017, Asia Pacific regulators will be moving beyond concern about compliance with explicit rules, adopting a more dynamic and forward-looking supervisory approach that will involve continual engagement and requests for granular data on a greater variety of matters.

“Firms will need to be in a position to clearly articulate their business strategy and may need to invest in advanced data and analytics technologies,” the report said.

“They should also expect more intense engagement with regulators, involving ongoing discussion, reviews, testing, guidance and challenge at the highest levels, covering all aspects of the business.”

Technology

Regulators will continue to nurture financial technology (FinTech) in 2017 and will investigate regulatory technology (RegTech) uses, according to the report.

In hand with this will be enhanced expectations around the strength of cyber security measures.

“Organisations wishing to maintain a competitive edge will need to invest in innovative technology, retain ongoing engagement on RegTech and take an integrated cross-functional cyber resilience approach.

“Technological innovations, while posing a threat to the established way of doing things, will also provide firms with the best ways to manage the range of stresses arising from the regulatory expectations explored in the report.”

Deloitte’s Kevin Nixon said financial services firms are currently doing business in a more constraining regulatory, economic and political environment, so they need to refresh their strategies to best respond to this environment.

“Not all organisations will succeed in doing this in the year ahead. Those that do will be the ones that find ways of making this new environment work for them, capitalising on their resilience, agility and efficiency.”